It’s important to understand the actions required and the implications of Foreign Resident Capital Gains Withholding (FRCGW) if you are selling real estate in Australia. Read on to learn more or contact our conveyancing team for more information.

Overview:

What is Foreign Resident Capital Gains Withholding?

Foreign resident capital gains withholding is an Australian tax of 15% that applies to vendors selling property regardless of the contract amount.

Why do we have a Foreign Resident Capital Gains Withholding Tax?

In short, this tax was created to hold a percentage of funds from the sale of assets by foreign residents to make sure they pay their tax obligations to Australia. Initially introduced at a rate of 12.5%, for contracts executed from January 1, 2025, the amount is 15%.

It can be costly to recover money from foreign residents should they leave Australia, so this withholding tax ensures that Treasury has access to funds to mitigate that risk.

Have the rules changed?

Yes. Initially, from 1 July 2016, Foreign Resident Capital Gains Withholding only applied to real property transactions contracted at over $2 million dollars, so it affected relatively few transactions in South Australia. With an initial lowering of the threshold to $750,000 in 2016 and the final removal of the threshold from January 1 2025, its impact is now much broader. FRCGW applies to all Vendors in South Australia who are selling property, regardless of the contract value.

If you enter into a contract on or after Wednesday 1 January, 2025, and from that point on, you WILL be affected by these taxation changes.

What is a Foreign Resident Capital Gains Withholding Clearance Certificate (FRCGW Form)?

From January 1, 2025 Vendors are required to apply for a Clearance Certificate to avoid having an amount of 15% of the purchase price withheld from their property proceeds. You can apply for the certificate using this ATO link or, in the case of clients of Eckermann Conveyancers, we are able to obtain a clearance certificate on your behalf.

Foreign Resident Capital Gains Withholding Certificate timeframe considerations

Once you have applied for the FRCGW Certificate, receipt can take up to 21 business days, so the vendor or their conveyancer needs to apply as soon as practicable following the execution of the contract of sale. This is particularly important in the case of shorter settlements as time is of the essence. Regardless of the length of settlement, it is prudent to apply as soon as you can.

Usually, the process is quite straightforward. However, if the vendor has not lodged a tax return within the previous two years, or they have a tax debt, the application is allocated to a different section of the Australian Taxation Office. We have seen this result in extensive delays. There is no escalation process in these instances, so this will simply require waiting in line until your time comes.

In the event the FRCGW Certificate has not been received prior to settlement, the settlement process can still proceed. However, the purchaser’s conveyancer is required to withhold 15% of the sale price from the vendor’s portion and pay this to the ATO at settlement. This is an obvious inconvenience and if the vendor is subsequently eligible for a credit of the 15%, that refund will be processed in the next financial year when the vendor or their tax agent submits their next tax return. It cannot be processed beforehand.

How your conveyancer can make life simpler

The Eckermann Conveyancers team is already well versed in these new changes and can advise you on your liabilities and responsibilities from this point forward.

There are some actions we encourage our clients to ask us to take when selling or buying property in the era of these new Foreign Resident Capital Gains Withholding Payments rules. For buyers:

  • Check for a Clearance Certificate from the vendor, or the vendor’s conveyancer, on or before settlement
  • In the absence of a certificate, ensure 15% of the purchase price is withheld and funds transferred to the ATO

For sellers: apply for a Clearance Certificate from the ATO as soon as possible, even before listing a property for sale. It will remain valid for 12 months and take one extra hurdle away from the sale and settlement process.

While it sounds straightforward in isolation, remember this is just one consideration amid the raft of regulations, checks and fees your conveyancer is managing on your behalf during the settlement process.

If you have any questions in relation to FRCGW, speak with your client manager at Eckermann Conveyancers or contact us at enquiries@eckermanns.com.au.

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